Despite gold prices hitting record highs, analysts aren’t gung-ho about the outlook for gold financiers Muthoot Finance and Manappuram Finance. This, they said, was due to intense competition from banks, coupled with stagnating loan books and likely pressure on margins.
“The going seems to be tough for gold financiers to achieve gold asset under management (AUM) growth, amid intense competition and pricing pressure. Moreover, microfinance, commercial vehicle, home, and MSME/personal loans are performing better than gold loans,” said analysts at Prabhudas Lilladher.
Higher gold prices mean customers seeking loans will get more money for their gold holdings.
The yellow metal hit a record high of Rs 58,826 per 10 gram on the Multi Commodity Exchange (MCX) recently, and has rallied around 2 per cent so far this calendar year.
While NBFCs charge interest rates anywhere between 10 per cent and 24 per cent, depending on loan amount, banks charge 7-17 per cent interest per annum.
During the October to December quarter (Q3), Muthoot Finance gold AUM remained flat at Rs 56,800 crore.
This was 5 per cent higher on a year-on-year (YoY) basis.
Gold tonnage declined 2 per cent YoY/1 per cent QoQ to 175 tonnes.
Manappuram Finance, meanwhile, saw a 3 per cent sequential and 9 per cent yearly decline in gold loan AUM.
Its overall AUM at Rs 31,900 crore witnessed growth of 4.9 per cent YoY and 4 per cent QoQ, led by growth in non-gold AUM (up 15.6 per cent QoQ/33.3 per cent YoY).
Gold holdings, too, declined by 4.5 per cent QoQ (14.5 per cent YoY) to 60 tonnes.
“Gold financiers are focusing on maintaining their yields by compromising their growth in the gold business, while relying on non-gold portfolio diversification for AUM growth.
“With the stoppage of teaser loans and a higher focus on yield protection, margins may improve, but not to their historic highs.
“With competition heating up, we anticipate slower business growth for gold companies,” cautioned Cyril Charly, research analyst at Geojit Financial Services.
Analysts believe the continued aggression of banks and fintechs would make gold loan NBFCs pivot their business models to lower spreads and margins.
Gold loans worth Rs 84,256 crore were outstanding as on December 30, 2022, according to data provided by the Reserve Bank of India.
It was up 11.2 per cent YoY — the slowest yearly growth within the personal loans’ segment.
According to brokerage firm Systematix, the share of gold loans in bank portfolios increased to 5 per cent in FY22, from 3.3 per cent in FY20.
This came as NBFCs’ market share slid to 20 per cent from around 23 per cent during the period.
Veer Trivedi, research analyst at SAMCO Securities, believes the steep correction in shares of gold financiers provides an attractive entry-point from a long-term perspective.
He is cautiously positive on Manappuram Finance over its peers as it has diversified its AUM, and gold loan AUM constitutes only 42 per cent now.
“However, its underwriting capability in new segments needs to be observed,” he said.
The stock of Manappuram Finance has declined 10.5 per cent over the past year, while Muthoot Finance has plunged 25 per cent on the BSE.
The benchmark BSE Sensex and Nifty50 advanced 5.3 per cent and 4.1 per cent, respectively, during the period.
Cyril Charly of Geojit concurred and said the stocks no longer enjoy premium valuations.
From one-year forward price-to-book value (P/BV) multiple-based premium of 2x to 3x, gold financiers now command a premium in the range 1x to 2x over banks.
These low valuations, he added, allow a decent long-term return.
IDBI Capital and Prabhudas Lilladher have ‘buy’ ratings on Manappuram Finance with one-year target prices of Rs 148, and Rs 144, respectively.
Motilal Oswal Financial Services is ‘neutral’ on Muthoot (target: Rs 1,140), while Nirmal Bang Institutional Equities has a ‘buy’ rating (target: Rs 1,328).
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